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Compliance and Fraud Resources

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Servicing Shops Tackle Short Sale Scams

By Jennifer Harmon

Origination fraud is impacting mortgage servicers today with increased expenses in dealing with collection attempts, loss mitigation contact, foreclosures and real estate-owned assets, according to Robert Maddox, a partner with the law firm of Bradley Arant Boult Cummings.

Mr. Maddox spoke at the "Loan Defaults - The New Fraud Dream" session at the MBA's National Mortgage Servicing Conference in San Diego. He said the servicing industry is also seeing increased expenses in litigation for possible repurchase.

"That is the big 'R' that everyone is having to deal with right now. Most of you that are servicers have your own repurchase defense team to deal with those issues. Origination fraud causes a decreased reputation for the servicer unfortunately and across the whole industry. It also causes a decrease in property values. Portfolio values are obviously down as well," said Maddox.

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Fourth Defendant Pleads Guilty to Bank Fraud Scheme

By Jennifer Harmon

A fourth defendant pleaded guilty before U.S. District Judge Thomas J. McAvoy in Albany in the bank fraud scheme involving Michael Cassadei and others.

Karen Hewitt, 51, pleaded guilty to her role in the scheme in which Cassadei and others used fraudulent loan applications, appraisals, settlement statements, and other false statements and documents to induce the former First Union National Bank of Delaware to finance the sale of Capital Region residential properties that they did not own yet to third parties in amounts well in excess of their actual value, with the participants in the scheme using the proceeds from the loans to purchase the properties in much lower amounts and retaining the bulk of the funds for themselves.

Prosecutors say Hewitt admitted in court that she engaged in various acts in furtherance of this scheme while working at Affirmative Title and Abstract Co. in Albany, including submitting documents purporting to issue title insurance on the properties when, at a minimum, the chains of title were not clear, and preparing and submitting to the financial institution false HUD-1 statements that failed to disclose the true nature of the transactions, in that the bank was unaware that the loan proceeds were actually being used to purchase the properties at issue and for other purposes besides the stated sale of the properties to the end buyers.

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Voice of the Industry

Fraud Hiding in the Shadows

By Sharon Matthews

If there can be any silver lining to the financial services meltdown, at least as it pertains to mortgage lending, it is that mortgage fraud is now front and center in the industry consciousness. While financial institutions are still uncomfortable with admitting that fraud exists anywhere within their organizations, at least they are speaking up about how they are approaching fraud risk mitigation.

Recently, we've seen a number of product announcements aimed at helping lenders mitigate this risk, without limiting originations, in an environment where every closed loan counts. But there is one area of the loan origination pipeline that has been largely ignored by fraud detection vendors: settlement agent fraud.

A well-documented fact in our industry holds that fraud almost never occurs without a complicit party working with or for the lending institution. Because there are so many parties working on each mortgage deal, there are plenty of opportunities for criminals to gain access to the loan origination process.

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Legal Corner

By Herman Thordsen

THERE IS NO RESPA VIOLATION WHEN A PROVIDER OVERCHARGES THE BORROWER

FACTS

The Martinezes filed a lawsuit contending that RESPA Section 8(b)'s prohibition against "unearned fees" is violated when Wells Fargo allegedly committed "overcharging." They also argue that Wells Fargo's conduct was "unfair," "fraudulent" and "illegal," all in violation of the California Unfair Competition Law. The case was dismissed and the Martinezes appealed.

The 9^th Circuit U. S. Court of Appeals said affirmed. The clear and unambiguous language of RESPA Section 8(b) does not reach the practice of "overcharging." The dismissal of the three UCL state law claims is because the claims alleging "unfair" and "fraudulent" conduct are preempted by the National Bank Act.

The complaint alleges the Martinezes refinanced their California home mortgage loan through Wells Fargo. Wells Fargo charged the Martinezes an underwriting fee of $800 for the refinancing. The Martinezes allege that this fee was excessive and therefore an overcharge because it was not reasonably related to Wells Fargo's actual costs of performing the underwriting, and thus violated RESPA Section 8(b) and California's UCL.

The district court held and the 9^th Circuit agreed as to the RESPA claim, that even if Wells Fargo had overcharged the Martinezes for its services, it did not violate RESPA Section 8(b). The Martinezes also contend that the $75 Wells Fargo charged them for tax services provided by its affiliate was more than what the affiliate had charged Wells Fargo, in violation of RESPA Section 8(b) and the UCL. This allegation targets a practice commonly referred to as a "markup."

RESPA Section 8(b) is not violated because Wells Fargo provided a service in exchange for the fee. The language of Section 8(b) prohibits only the practice of giving or accepting money where no service whatsoever is performed in exchange for that money. (Martinez vs. Wells Fargo Home Mortgage, No. 07-17277, 9^th Cir. 3-9-2010)

MORAL

As I have been saying all along, if you are a bank or subsidiary of a bank, you get away with anything including 4000% APR, but if you are not a bank or subsidiary, you do not get away with overcharges and your charges are controlled by state law. So, be a bank. Just don't use a bank.